Matt Spagnolo here, Fund Co-Manager for Colony Hills Capital.I had the privilege of attending the IMN conference in Newport, RI recently, where industry leaders gathered to discuss the current state of the real estate market and economic trends. During the conference, I had the opportunity to speak on a panel where one of the primary discussions centered around risk-adjusted returns in 2024. One recurring theme that emerged during the sessions was the outperformance of value-add deals across different asset types, providing compelling risk-adjusted returns.In this article, I’ll share my talk on the panel and show you the power of value-add multifamily real estate.
Understanding Value-Add Deals and Property Classes
Not all real estate is the same; there are several classes of real estate that you could potentially invest in. At Colony Hills Capital, we specialize in value-add real estate opportunities, which involve properties that are typically 10-30 years old and due for updates, such as renovating units, adding amenities, and enhancing operational efficiencies. These improvements increase the property’s value and appeal.
Real Estate Property Classes
Value-add is not the only class you could invest in though. Here’s a quick breakdown of real estate classes:
- Class A properties: Newly built or extensively renovated, with top-tier locations, high-end amenities, and the highest rents.
- Class B properties: Older, solid infrastructure, good (but not premier) locations, often need modern upgrades.
- Class C properties: Older properties in need of substantial repairs. They may be in less desirable areas, and offer basic amenities with lower rents.
- Class D properties: Oldest, poorest condition, least desirable areas, significant investment needed.
Should you invest in Class A? Or Class D? Read on as I share what the experts say.
The Conference Verdict: Industrial and Multifamily Are Leading the Charge
The consensus at the IMN conference is that multifamily and industrial value-add deals offer the best risk-adjusted returns in the current market. This is due to their adaptability to varying economic conditions and the substantial upside from property enhancements. So which class is “value-add?”Class B stood out as the main focus at the conference. Read on as I share why Class B may be the best investment option for your portfolio.
But Why Class B Multifamily Real Estate?
Of all the available real estate classes, why Class B multifamily real estate? I have five reasons for you to consider it:
- Reduced Competition: Class B is generally less competitive than Class A, with substantial upside potential once renovated.
- Steady Demand: Class B real estate is attractive to middle-income and work-force renters; it maintains demand during economic fluctuations.
- Value-Add Potential: Class B real estate is usually in good condition but could benefit from key improvements. These renovations and operational efficiencies can significantly boost rental rates, operating income, and property value.
- Risk Mitigation: Lower acquisition costs and value creation through improvements to minimize market risks.
- Attractive Financing Options: Potential for favorable financing terms due to value and income potential.
Multifamily real estate can be an excellent way to diversify your portfolio, build wealth, and minimize your tax burden. Of all the classes of real estate available to you, I (and the experts at the IMN conference) would recommend considering Class B value-add.
Ready to Add Value-Add Multifamily Real Estate to Your Portfolio?
At Colony Hills Capital, we are committed to capitalizing on strategic investment opportunities and providing our investors with the best risk-adjusted returns possible.In order to do this, we need to stay on top of economic and industry trends and make adjustments internally when necessary. Insights from the IMN conference reinforce our focus on multifamily Class B value-add deals as a cornerstone of our investment strategy. By leveraging our expertise in property improvement and management, we aim to continue delivering exceptional returns for our investors while revitalizing communities.
Browse our current investment opportunities and start investing in Class B multifamily real estate today.
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